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Can you guess which country's economic model is regularly touted by political commentators and financial observers as something all Western democracies should emulate? If you chose the U.S., Britain, or Germany, prepare to be shocked. Believe it or not, it's Canada.

Why the land of igloos, back bacon, beer, and hockey? For one thing, the World Economic Forum has ranked Canada's banking system as the best in the world for five consecutive years. Meanwhile, Moody's Investors Service gave all Canadian banks its top credit rating up until just last month -- and even now, Moody's rating of Canadian banks continues to be among the highest in the world.

The British also looked to Canada as a success story. As Treasury Chief George Osborne noted, Canada "brought together the best brains both inside and outside government to carry out a fundamental reassessment of the role of the state."

When it comes to understanding capitalism, utilizing the free market, and removing barriers to trade, Americans would be wise to ignore Canada.
Dan Picasso for Barron's

This helps explain why Mark Carney, governor of the Bank of Canada, will become the Bank of England's next governor on July 1. As Osborne told the United Kingdom Parliament, Carney is "the outstanding central banker of his generation," his steady hand enabled Canada "to have weathered the economic storm better than any other major Western economy," and he will provide the "strong leadership and external experience the Bank [of England] needs."

The Canadian economy has survived the global economic crisis in large part due to two distinctly anticapitalist measures: extensive state regulation and restrictive foreign-ownership rules. Both of them have been in place for decades, on the theory that Canadians can't be trusted to do the right thing on their own. While Harper and the Conservatives obviously believe in the free market and support private enterprise, state rights often trump individual rights in matters of public policy and business.

Canada lost its Standard & Poor's AAA credit rating in 1993. It regained it in 2002 by heavily cutting expenditures, removing about 25% of the bloated civil service, and reforming pensions. Full credit goes to Liberal Prime Minister Jean Chrétien, and his finance minister, Paul Martin, for starting this important process in their 1995 federal budget. Alas, the "Maple-Leaf Miracle" is a thing of the past.

In a December 2008 paper titled "Canada and the United States: The Global Financial Crisis and its Impact on Canada," author Philippe Bergevin (now a senior policy analyst for the C.D. Howe Institute) noted, "Canada's financial system has been relatively less affected by the global financial crisis than those of other industrialized countries, such as the United States and Great Britain." As he wrote, "Canadian banks are profitable, well capitalized, and well positioned to withstand economic shocks. As well, with the six largest domestic banks holding more than 90% of banking industry assets, the banking industry is relatively stable. Furthermore, the regulatory framework for Canada's financial sector is both more responsive and more prudent, in some respects, than that of the United States."

INDEED, DOMESTIC BANKS dominate the industry, meaning international banks struggle in a less-than-competitive financial marketplace. And Bergevin's cryptic description of Canada's financial sector as "more responsive and more prudent" needs to be rephrased: It is more regulated and more restrictive. While there are opportunities for Canadian banks and the rest of the financial sector to explore different investment options, a very tight leash from the state is in place.

The Canadian economic model is therefore more like Europe's, only a few paces slower.

Does this mean that Canada could face austerity measures like Europe somewhere down the road? Unlike Europe, Canada has resisted the temptation to nationalize financial institutions. There is a greater respect for the free market, privatization, and trade liberalization, and the government is trying to reduce union control. Yet Canada is far behind the economic philosophy that has successfully guided the U.S. for many generations.

Some would argue that things would have been much worse in Canada without its longstanding chains of state regulation.

For instance, an argument can be made that a less regulated Canada likely would have been more involved in subprime mortgages. As Bergevin correctly pointed out, "Subprime loans accounted for less than 5% of new mortgages in Canada, compared to 22% in the United States" in 2006, and, "whereas more than 50% of all mortgage debts outstanding in the United States were sold to investors through securitization, more than 75% of Canadian mortgages were held by financial institutions on their balance sheet in a more traditional fashion" as of Dec. 31, 2007.

At the same time, more potential involvement doesn't necessarily mean total involvement. The U.S. is a much larger country than Canada, and has a greater pool of available money at its disposal. Canadians don't invest on the same scale as Americans, and tend to be more cautious regarding large-scale investments. (Although that seems to be changing with respect to the depleted U.S. housing market, as some Canadians are investing -- or speculating -- in devalued properties in Florida and Arizona.) Even if Canada had bought more subprime mortgages, the federal government still would have had to bail out the auto industry and tighten its financial belt, as the U.S. is currently trying to do.

Canada certainly has some good lessons to teach the U.S. about fiscal prudence and good governance. But the experts and observers are wrong in the big picture. When it comes to understanding capitalism, properly utilizing the free market, and removing economic barriers to trade, Americans would be wise to ignore Canada instead of praising its virtues.

MICHAEL TAUBE is a Toronto-based free-lance columnist for the Washington Times and a former speechwriter for Canadian Prime Minister Stephen Harper. He can be reached at miketaube@yahoo.com.